The global financial landscape is witnessing a rapid transformation with the rise of digital currencies. In June 2025, Hong Kong's Stablecoin Ordinance came into effect, followed closely by the U.S. Senate passing a comprehensive stablecoin regulatory bill. These developments highlight the accelerating pace of change in monetary systems worldwide.
Stablecoins like USDT and USDC, which are pegged to the U.S. dollar, have experienced explosive growth. Simultaneously, central banks are exploring Central Bank Digital Currencies (CBDCs), while financial institutions are developing various tokenization solutions. This creates a diverse and dynamic digital currency ecosystem.
Against this backdrop, important questions emerge: Should China develop its own stablecoin? What strategic approach would align with its financial stability objectives and broader economic goals?
Understanding Stablecoins and Their Global Impact
Stablecoins are cryptocurrencies designed to maintain a stable value, typically by pegging to specific assets like traditional currencies. They address the volatility concerns that have limited the practical use of earlier cryptocurrencies like Bitcoin for everyday transactions.
The global stablecoin market has grown dramatically from under $5 billion in early 2020 to approximately $250 billion today. Dollar-denominated stablecoins dominate this market, accounting for 99% of all stablecoin value. Among these, USDT holds about 70% market share, followed by USDC.
This growth reflects two key developments: rising demand for efficient, low-cost payment methods within cryptocurrency ecosystems, and the expanding adoption of decentralized finance (DeFi) applications. It also demonstrates the highly concentrated nature of the stablecoin market, exceeding even the concentration levels seen in traditional financial markets.
Opportunities Presented by Stablecoins
Stablecoins offer several potential benefits that explain their rapid adoption:
Enhanced Transaction Efficiency: They enable near-instantaneous settlement for cross-border transfers, operating 24/7 without traditional banking hours limitations.
Potential Cost Reduction: Some estimates suggest stablecoins can reduce cross-border transaction costs by up to 90% compared to traditional systems. However, this cost advantage partly stems from avoiding certain regulatory requirements that traditional financial institutions must bear, including compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
Programmability and Composability: Blockchain technology enables smart contracts that can automate complex financial operations, potentially offering more sophisticated corporate treasury management solutions than traditional API-based banking systems.
Increased Financial Inclusion: The open architecture of blockchain-based stablecoin systems could potentially enhance accessibility to digital financial services, particularly for underserved populations.
Challenges and Risks
Despite these potential benefits, stablecoins present significant challenges:
Monetary Policy Implications: Stablecoins operating outside the traditional "central bank-commercial bank" framework could potentially weaken central banks' ability to manage money supply and influence interest rates effectively.
Financial Stability Concerns: Poor reserve management by stablecoin issuers could trigger "run" scenarios. Additionally, if the short-term U.S. Treasury market experiences liquidity issues, this could destabilize dollar-pegged stablecoins, potentially creating systemic risks as issuers might need to rapidly sell treasury assets to meet redemption demands.
Digital Dollarization: With 99% of stablecoins pegged to the U.S. dollar, their borderless circulation effectively promotes digital dollarization, potentially exacerbating capital flow volatility and challenging financial stability in emerging markets.
Three Models of Stablecoin Implementation
Globally, stablecoin projects generally follow one of three implementation models:
Private Company Issuance Model
This approach involves non-bank private entities issuing stablecoins backed by high-quality liquid assets, primarily U.S. Treasury securities. USDT and USDC exemplify this model.
Strengths: Market-driven innovation, rapid response to market demands
Weaknesses: Regulatory challenges, potential financial stability risks, and reinforcement of U.S. dollar dominance in the international monetary system
Bank-Issued Deposit Tokens
This model involves licensed banks issuing tokenized representations of traditional bank deposits. JPMorgan's JPM Coin is a leading example.
Strengths: Leverages existing regulatory frameworks, integrated with traditional banking services, mature risk management practices
Weaknesses: Potentially limited innovation, interoperability challenges, possible reinforcement of large bank market dominance
Two-Tier "Wholesale-Retail" System
This approach uses wholesale CBDC as settlement backing for retail stablecoin payment systems, maintaining the traditional two-tier financial architecture.
This model offers four significant advantages:
- Maintains Existing Financial Architecture: It preserves the proven two-tier system where central banks manage wholesale settlement while commercial entities handle retail services, avoiding financial disintermediation risks.
- Ensures Monetary Uniformity: Multiple retail stablecoins can exist while maintaining a unified value foundation in wholesale CBDC, preventing currency fragmentation.
- Comprehensive Regulatory Coverage: All participating institutions require appropriate licenses and must comply with consistent regulatory standards.
- Compatibility with International Frameworks: This approach can integrate with existing cross-border payment systems like SWIFT and card networks, avoiding the need to build entirely new international payment infrastructure.
International projects like the UK's Fnality initiative and Switzerland's Helvetia project demonstrate the practical implementation of this model, showing how regulated stablecoins can operate within existing financial frameworks.
China's Strategic Considerations for Stablecoin Development
As global regulatory frameworks for stablecoins evolve, China must carefully consider its approach to digital currency development, particularly regarding potential yuan-denominated stablecoins.
Recognizing Structural Differences
China's financial system differs fundamentally from Western models. The United States has a highly market-oriented system with the dollar enjoying "exorbitant privilege" as the global reserve currency. China's approach combines market mechanisms with substantive government guidance, emphasizing comprehensive financial regulation and risk prevention.
Before developing new regulatory capabilities for institution, behavior, function,穿透式 (penetrative), and continuous supervision, China must prudently assess the pros and cons of privately issued stablecoins.
Aligning with National Financial Strategy
The strategic purpose of dollar stablecoins is to consolidate U.S. currency dominance. China's approach to RMB internationalization, however, focuses on serving the real economy's high-quality development. Stablecoins would need to integrate organically with China's institutional opening-up process in finance to deliver strategic and economic value.
Practical Realities of Cross-Border Trade
The theoretical "peer-to-peer" efficiency of stablecoins must be evaluated against practical realities of international trade. Cross-border transactions inherently involve information asymmetries across both time and space. Historical development of trade finance instruments like letters of credit, collections, and wire transfers addressed these complexities by incorporating banks, insurance companies, and other intermediaries.
The applicability of purely peer-to-peer payments remains limited in complex trade scenarios. The practical advantages of such systems in cross-border trade require further validation through real-world implementation.
The Role of CBDCs and Stablecoins
Neither retail CBDCs nor stablecoins represent a "sovereignty-free" international monetary system. At the wholesale level, wholesale CBDC as central bank money provides unquestioned settlement finality, fully realizing the "payment-is-settlement" advantage.
The Decision of the Third Plenary Session of the 20th CPC Central Committee called for "developing the RMB offshore market." Within a two-tier system, exploring bank-issued deposit tokens with offshore RMB characteristics represents a promising direction. International initiatives like Project Agorá, led by the Bank for International Settlements and the Federal Reserve Bank of New York with participation from multiple central banks and global financial institutions, demonstrate growing interest in this approach.
However, developing offshore RMB stablecoins requires careful consideration of onshore-offshore interest rate differentials. Premature authorization could incentivize cross-border arbitrage activities, creating interest rate and exchange rate arbitrage risks.
Addressing Systemic Biases in Global Digital Currency Development
Current digital currency development exhibits significant systemic biases. In cross-border payments, retail-level remittances constitute less than 10% of total cross-border payment volume. The overwhelming majority involves institutional payments between governments, international financial organizations, and financial institutions.
Despite this reality, both the G20 cross-border payment roadmap and most stablecoin market participants focus disproportionately on retail remittances, paying insufficient attention to wholesale cross-border payments. This imbalance hinders coordinated digital currency innovation and potentially exacerbates vulnerabilities in the international monetary system.
Reforming the global cross-border payment system requires more comprehensive systematic thinking. Wholesale cross-border payments form the microfoundation of the international monetary system and critically influence currency internationalization. While smaller in volume, retail cross-border remittances significantly enhance a currency's international accessibility and usability.
The two-tier "wholesale-retail" system conceptually integrates both levels, recognizing the foundational importance of wholesale payments while acknowledging the inclusive value of retail applications. This balanced approach offers a more complete framework for developing future digital currency systems.
For those interested in exploring technical implementation frameworks for digital currency systems, additional resources on next-generation payment infrastructure provide valuable insights.
Frequently Asked Questions
What are the main types of stablecoins?
Stablecoins primarily fall into three categories: those issued by private companies and backed by assets like treasury reserves, bank-issued deposit tokens representing claims on traditional bank deposits, and stablecoins operating within a two-tier system backed by wholesale central bank digital currencies. Each model offers different trade-offs between innovation, stability, and regulatory compliance.
How might stablecoins affect China's financial system?
Stablecoins present both opportunities and challenges for China's financial system. They could potentially enhance payment efficiency and support RMB internationalization but might also create risks related to monetary policy implementation, financial stability, and cross-border capital flows. China's approach will likely emphasize maintaining financial stability while carefully exploring innovations that serve real economic needs.
What distinguishes the two-tier stablecoin model from other approaches?
The two-tier model maintains the traditional separation between central bank wholesale functions and commercial retail operations. This approach preserves the benefits of central bank backing for settlement finality while allowing private sector innovation in customer-facing services. It also facilitates smoother integration with existing regulatory frameworks and international payment systems.
Are stablecoins likely to replace traditional cross-border payment systems?
Complete replacement is unlikely in the foreseeable future. While stablecoins may capture certain market segments, especially in retail remittances and specific cryptocurrency-related transactions, traditional systems like correspondent banking and established card networks will continue handling the bulk of institutional cross-border payments due to their成熟 (maturity), reliability, and comprehensive regulatory compliance.
How does China's approach to digital currency differ from other major economies?
China emphasizes the developmental role of digital currency in serving the real economy rather than as a speculative instrument. The approach combines technological innovation with strong regulatory oversight, focusing on maintaining monetary sovereignty and financial stability while progressively increasing the international use of the RMB through institutional rather than purely market-driven means.
What role might the internationalization of the RMB play in stablecoin development?
The internationalization of the RMB creates potential opportunities for yuan-denominated stablecoins, particularly in offshore markets. However, such development would need to carefully manage the relationship between onshore and offshore yuan markets to prevent arbitrage activities that could create financial instability. International collaboration, as seen in projects like Project Agorá, might provide viable pathways forward.